Government Operations Committee on Feb. 26th, 2008

[The Chair, Liberal, Diane Marleau]

Your five minutes are up. Thank you, Mr. Kramp.

Madame Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you, Madam Chair.

For my part, I agree with Mr. Kramp that this is a sad situation. Yes, it is really sad. The minister, who was president of Treasury Board at that time, made an unfortunate decision and that leaves a bad impression. However, I believe that the minister should have been aware. He is surrounded by people who, in theory, advise him and help him carry out his departmental responsibilities.

I think that the minister showed complete disrespect for the city, which is a separate entity. He was not careful, nor was he transparent. He spoke out during a municipal election campaign. If it was an error in judgment, we could forgive him because he is young and he was a newly appointed minister, but we cannot extend that to his staff. The new council had approved light rail. Moreover, there was a condition under which the project would go forward if the new council approved it. This is a sad situation and it leaves an unfortunate impression.

The city has a right to municipal independence. In Quebec, we really insist on our independence, precisely so that we will not find ourselves stuck in a process like the one the City of Ottawa is unfortunately currently embroiled in. We tell ourselves that if we are dealing with only one level of government, we will be able to come to an agreement, but that would not be possible if there are two. Having said that, I think that the minister simply engaged in petty politics at a time when there was a municipal election. I find that unfortunate for the people of Ottawa. But it is crystal clear: the minister is responsible and he should not have done what he did.

[The Chair, Liberal, Diane Marleau]

Thank you, Ms. Bourgeois.

We will now go to Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you, Madam Chair.

I would like to continue trying to get a clear sense of timelines so we can get a better understanding of what happened here.

On October 10, 2006—where we left off—Mr. Baird went to the media to announce that what he had found in the contract gave him the power to override the agreement. Did he ask any questions of city officials before going to the media? Did he ask for any clarifications? Were there any discussions between Mr. Baird and the city before he went and announced his decision in the media?

[Kent Kirkpatrick]

Through you, Madam Chair, the answer is no.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Okay.

I've read what was provided to us, and I'm looking at a memo by you, Mr. Chartrand, dated October 26, concerning what this contract provision allowed for and didn't allow for. In your memo to city officials you said that

The right to extend the closing date is expressly reserved for the benefit of the two parties to the Project Agreement. It was not designed to give the Treasury Board the right to delay the closing date for the purpose of allowing the new Council to revisit the decision of the existing Council. [...] Neither of the parties to the contract would be able to use the extension clause in the way that Treasury Board is using it. The extension clauses are being used for a purpose that was not envisioned in the contract.

Again, were you surprised by this extraordinary interference in the contract by John Baird in the middle of an election campaign?

[Réjean Chartrand]

As we've stated before, yes, this was unexpected and unanticipated.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Going back to the timelines again—because Mr. Moore was so good to bring forward the letter from Mr. Hunter of August 2006, where he certainly was raising questions about this project—Mr. Baird has called the project a boondoggle.

On October 3, the Canadian Public Procurement Council announced its winners for procurement projects across Canada, and the Ottawa light rail project was announced as the winner. On that very same day, John Baird was putting up the red light because he had serious concerns about this so-called boondoggle.

How could this project have won a national award for procurements if it was such an outrageous boondoggle necessitating the personal intervention of a minister in the middle of a municipal election?

[Réjean Chartrand]

Well, as we've stated before, from the city's perspective, we certainly believed we had met all of the requirements. This was not a project that came forward at the last minute; there were years of planning behind this project, and numerous council approvals throughout those many years. There were exhaustive environmental assessment studies carried out, both by the Province of Ontario and the federal government. Transport Canada had required the city to do a very detailed business case to prove ridership and value for money. All of those studies had been completed and approved. So from the city's perspective, we had done everything we could to meet the requirements under the memorandum of understanding, and we qualified for the $200 million.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Now, it's my understanding that Siemens—though they're not here to speak for themselves—met with Mr. Baird and warned him there would be cost overruns if he intervened in the contract this way. The city was certainly concerned about the financial penalties they would face from this intervention.

The reason given for this intervention was that the government was concerned about cost overruns. But did this become a self-fulfilling prophecy at the end of the day? Has the city been faced with higher financial penalties because of this interference?

[Kent Kirkpatrick]

Chair, as I indicated earlier, I'd refrain from speaking to a potential result, but I would go back and say we did indicate publicly that there would be a potential for impacts on the costs of the project should it be delayed beyond its October 5 signing.

People may wonder how that can be the case when we had a fixed-price contract, as we've indicated. The issue is that the contract was a fixed-price contract, but were it to be delayed beyond October 15 there was the potential of significant logistical construction season issues that would bring significant cost pressure to bear on the consortium living within the contract. That of course in the end does result in impacts in terms of negotiated change orders and everything else through the life of a contract.

More importantly, what was missing, I think, is that within that budget, $90 million—and this was the only risk to the city within this whole project budget, as we were taking the risk of utility locations, which were estimated to be in the order of $40 million to $50 million downtown—there were significant logistical issues, construction season issues, in terms of our ability, working with Bell Canada and the other utilities, to make those utility relocations happen in the sequence in which they needed to happen in order not to impact the timeline the consortium had the right to expect in terms of moving in and doing their construction.

So to the extent that utility relocation might be deferred, there could have been a significant impact on the overall project, and pieces of it that we, the city, did hold the risk for. That is what was being referred to in Mr. Chartrand's memos and other discussions in October about potential for cost impacts, cost overruns, if the decision to move forward with the project was delayed significantly.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

Mr. Warkentin.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you very much.

I'd like to continue with regard to the issue of cost overruns if there was delay beyond the October 15 date. Some media have even indicated or speculated that the amount could be in the area of $65 million. But Mr. Chartrand, weeks before the election you presented before Ottawa City Council, on October 11, and in your words, you said that if the decision was deferred for the new council to make, there'd be “little exposure to the city”.

In other words, there really wasn't a $65 million penalty if that decision was deferred for the new council. Your testimony was clear in terms of the words “very little exposure”. I'm wondering if you could speak about what you were providing in testimony that assured you there'd be little exposure.

[Réjean Chartrand]

There were a lot of discussions about the $65 million to $80 million exposure if the contract was not executed prior to the deadline--

[Chris Warkentin, Conservative, Peace River, AB]

And by “deadline”, are you speaking about the December 15 date or are you speaking about the October 15 date?

[Réjean Chartrand]

The October 15 date was the date we had committed to the contractor for and to secure all the approvals. As we've explained before, we had negotiated some ability to what I would call “clean up the paperwork”, both on the contribution agreement and on the property acquisition, and mostly on the property acquisition, which the city could have waived. Right.

[Chris Warkentin, Conservative, Peace River, AB]

So specifically, deferment by Treasury Board allowed the city to have those additional weeks to make the decision and to ensure the new council was onside. That's my understanding, and that was the provision granted to the city and the opportunity for the citizens of Ottawa to have their say.

Mr. Kirkpatrick, you talked about the vote on December 6. I'm wondering if you could speak to the outcome of the December 14 decision. My understanding is that the decision of council was to kill the project, effectively, by what was voted on on that date. Is that accurate?

[Kent Kirkpatrick]

The decision on the 14th was to not complete financial closure to the contract, to execute the contract, and that decision was fundamentally based on the fact that on that date we only had one signed contribution agreement from a senior government. That was from the provincial government. In the absence of a signed contribution agreement from the federal government, the city could not take the risk of finalizing that contract.

[Chris Warkentin, Conservative, Peace River, AB]

The city council effectively killed it, then, on December 14.

There is a difference between cost overruns and penalties. These are two different things. In terms of the testimony provided so far, if the decision had been deferred until December 15, what would the penalties have been? Are we talking about $65 million?

[Kent Kirkpatrick]

No, the contract did not provide for penalties. We were talking about potential cost overruns only.

[Chris Warkentin, Conservative, Peace River, AB]

Okay, so there would be no penalties if the decision had been deferred for the new city council to render their decision.

I guess maybe I'm asking confidential information about the contract--

[Kent Kirkpatrick]

No, the contract did not provide for penalties in that sense, but the numbers we referred to earlier were the potentials for cost overruns, cost pressure, both to the consortium and to the city.

[Chris Warkentin, Conservative, Peace River, AB]

My understanding is that originally when the project was conceived they were looking at an amount of $500 million. Is that correct? Was that the number originally speculated?

[Kent Kirkpatrick]

Madam Chair, through you, I would need to know what point in time the honourable member is referring to. As Mr. Chartrand indicated, this project went through years of planning. There were conceptual estimates made at many times throughout the process. As Mr. Chartrand indicated earlier, in the end the final budget estimate that council had approved for the project was in the order of $730 million, and as Mr. Chartrand indicated, we were close to that in terms of the final price of the base LRT contract that was recommended to council.

[Chris Warkentin, Conservative, Peace River, AB]

In terms of the contract, as it is still secret--